An investment by a famous Russian oligarch has helped to scuttle a planned Bank investment in a major Kenyan road project, and it appears that China may be poised to pick up the pieces of the deal.
The project to construct a toll road through congested Nairobi has long been a priority for the Kenyan government. The World Bank had considered commiting millions to the road, which would be constructed and run by the Austrian firm Strabag. Then came a series of delays and internal Bank investigations concerning the project's financing. Last week, the Bank pulled the plug. In itsstatement announcing the decision, the Bank strongly suggested that the principal obstacle was Strabag's unwillingness to comply with all its transparency requirements:
After completing a detailed review and due diligence on the project and its sponsors, including a compliance review conducted by external counsel, the World Bank found that the systems and approach to compliance procedures would not be commensurate with the circumstances of this project and the governance risks facing this sector. Accordingly, the World Bank Group is not prepared to participate in financing the consortium involved in this project as currently structured...If the Government of Kenya so desires, the World Bank Group would be prepared to finance a concession undertaken by Strabag, on the condition that Strabag agrees to expand its integrity compliance procedures and training programs to cover the company more completely.
What the Bank statement didn't say was that an investment in the Austrian company by Russian oligarch Oleg Deripaska was the central cause for concern. One of the world's youngest billionaires, Deripaska made a fortune in the aluminum industry. But like so many other Russian oligarchs, he travels under a cloud of suspicion and rumor. He's been linked in court cases to Russian organized crime and was apparently barred from entry to the United States for several years. It appears that the Bank did not want to be associated with him, even at an arm's length.
The story may have another wrinkle. It was reported this week that China, which has been active in Kenyan infrastructure projects, may pick up the contract for the toll road:
The government has invited Chinese contractors to take over construction of Nairobi’s Sh67 billion highway, a move that may spare motorists the burden of making daily payments to drive through the Kenyan capital.
Ministry of Roads officials said the World Bank’s exit had thrown them back to the drawing board to seek alternative means of financing the project after the preferred public private partnership involving a consortium led by Austrian firm Strabag collapsed last week.
The phenomenon of new donors like China charging in where the World Bank fears to tread has emerged as a common storyline in development circles, and Kenya's road project may become the latest chapter. If China does ink the deal, it may want to send Deripaska a thank you note.
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